Council’s Plan for Cable Competition Goes Bust

The prospects of ending long-standing cable television monopolies in Los Angeles dimmed Wednesday as City Council members vowed to revoke a franchise granted in July to Western Integrated Networks, one day after the company filed for bankruptcy protection.

The 2-year-old Denver-based company, also known as WinFirst, had promised to give the city’s 3.4million residents lower prices and improved service by building a fiber-optic network for delivering television, Internet access and telephone services in competition with incumbents including AT&T; Broadband, Adelphia Communications and Time Warner Cable.

Companies such as WinFirst, known as “overbuilders,” have cropped up to duplicate cable networks, attempting to capitalize on new digital technologies that improve the economics of constructing these expensive networks.

Because of the enormous capital required and the uncertain returns, Wall Street has been reluctant to fund overbuilders. As a result, fewer than 5% of the nation’s 100million households have a choice of more than one cable operator today, according to the Consumer Federation.

In the wake of the company’s financial difficulties, Councilman Nate Holden said Wednesday that he would propose nullifying the company’s cable franchise at Friday’s City Council meeting.

In a heated debate last summer before WinFirst won the franchise in a 12-2 vote of the council, Holden questioned the financial solvency of the Denver concern and asked for provisions in the contract to protect the city in the event of bankruptcy.

“All I can say is ‘I told you so,’” said Holden, who voted against WinFirst. “The [other council members] voted with full knowledge that these guys were not financially sound. Now we’ve got to make this contract null and void before the bankruptcy court claims it has an asset of the company.”

Councilman Mark Ridley-Thomas, chairman of the city’s Information Technology and General Services Committee, which oversees cable franchises, also called for action against WinFirst at a hearing Wednesday.

City officials told Ridley-Thomas that WinFirst had been “unresponsive” to their telephone calls since November and that the company had closed its only business office in Los Angeles County and terminated construction of a fiber-optic network in Sacramento.

At the hearing, Liza Lowery, the Information Technology Agency’s chief information officer, said WinFirst had fulfilled its obligation to pay the city some $650,000 for access facilities and equipment, but had not provided an engineering report by the December deadline.

Lowery said it was too early to know the impact on the city of the bankruptcy filing.

WinFirst officials could not be reached for comment.

Ridley-Thomas ordered Assistant City Atty. Edward Perez to present him with a plan of attack within a week. “We’ll pursue this aggressively,” said Ridley-Thomas after the meeting.

In an interview, Holden, who was not at the hearing Wednesday, said waiting a week was not acceptable. “We need to move on it right away,” he said.

He added that WinFirst’s financial difficulties are a black mark on the record of Councilman Alex Padilla, who as chairman of the Information Technology Committee last year pushed through the measure. “Alex put his whole reputation on the line for this,” Holden said.

Padilla would not comment Wednesday. But when the measure passed last fall, he said that he understood the financial risk of trying to provide residents with competition and that WinFirst could run out of money before the end of its 15-year contract, leaving city streets and sidewalks disrupted.